Italian 2021 Budget Law introduces a tax reduction for dividends received by “non-profit” entities

Prepared by Pasquale Salvatore, Raimondo Rossi e Vittorio Feole

Italian 2021 Budget Law (art. 1, paras. 44-47, L. 178/2020, published in Italian Official Gazette on 30.12.2020) provides for the reduction to 50% of the taxable quota of profits received by non-commercial entities operating in the “non-profit” industry that carry out specific activities in the public interest.

According to 2021 Budget Law, it is provided that the profits (dividends) received by Italian tax resident “non-profit” non-commercial entities and by Italian permanent establishments of non-resident non-commercial entities that carry out specific activities in the public interest are included in the taxable base relevant for Italian income tax (IRES) purposes at 50% rate, in lieu of the 100% rate ordinarily applicable.

The new provision applies from the fiscal year ongoing as of 1 January 2021 (i.e. from fiscal year 2021 for  entities which fiscal year following the calendar year) and introduces a special regime derogating from the ordinary full taxation of profits received by non-commercial entities, as resulting from the reform provided by the Decree of the Ministry of Finance of 26.5.2017. In any case, under a specific anti-abuse provision, profits deriving from equity investments in companies located in Jurisdictions with privileged tax regime are excluded from the new favourable provision, in line with the ordinary rules provided in this respect by the Italian Tax Code.

As reported in the Explanatory Notes to the 2021 Budget Law, the new favourable provision is aimed at enhancing the subsidiary role played by non-profit organizations and is drafted in line with other favourable provision relevant for tax purposes, such as, for example, for repatriation of profits from entities located in Countries with privileged tax regime carrying out an effective economic activity (art. 89, para. 3, Italian Tax Consolidated Text).

In order to benefit from the new favourable provision, the non-commercial entity shall meet the following conditions:

  1. the exercise, as the sole or main activity, of one or more activities in the public interest for the pursuit of civic, solidarity, and socially purposes in specific areas specifically identified, namely (i) family and related values; youth growth; education, instruction and training, including the purchase of publishing products for schools; volunteerism, philanthropy and charity; religion and spiritual development; elderly care; civil rights; (ii) crime prevention and public safety; food safety and quality agriculture; local development and local public housing; consumer protection; civil defence; public health; preventive and rehabilitative medicine; sports activities; prevention and recovery of drug addiction; pathology and mental and psychological disorders; (iii) scientific and technological research; environmental protection and quality; (iv) art, activities and cultural heritage;
  2. the allocation of the tax savings deriving from the tax relief provision at hand to the financing of the general interest activities referred to in point (I) above;
  3. the allocation of the tax savings deriving from the tax relief provision in question and not yet used to a dedicated accounting reserve.

Specific provisions are foreseen for foundations of banks, as stated by Legislative Decree n. 153/1999.

Regarding the exercise of the activities of general interest listed in point (I) above, the perimeter provided by the 2021 Budget Law seems to recall the “activities of general interest” relevant for “entities of the Third Sector” (enti del Terzo settore) by the relevant Code (art. 5, Legislative Decree n. 117/2017), which, however, provides for a more detailed perimeter and could therefore only partially overlap with the one provided by the 2021 Budget Law (refer to G. Sepio, M. Garone, “Reduction of taxation on profits received by non-commercial entities”, in il fisco 47-48/2020, p. 4565). This possible asymmetry, if not resolved by an extensive official interpretation of the new law provision, could create distortions in the application of the new favourable tax provisions and the general rules applicable to “entities of the Third Sector”, whose reform is currently in its final phase, after the enactment of the Official National Register for the Third Sector (so-called RUNTS, established by Ministerial Decree 15.9.2020 n. 106, pursuant to art. 53, Legislative Decree n. 117/2017).

Finally, although the 2021 Budget Law does not contain any specific indications in this regard, it is reasonable to consider that the favourable provision is applicable not only to dividends (expressly mentioned in the heading of the political documents related to the 2021 Budget Law) but also to income that are equivalent to dividends, such as income deriving from equity financial instruments (in line with the provision contained in art. 44, para. 2, lett. a), TUIR). An official clarification in this respect is expected.

Let’s Talk

For a deeper discussion, please contact:

Pasquale Salvatore

PwC TLS Avvocati e Commercialisti


Raimondo Rossi

PwC TLS Avvocati e Commercialisti

Senior Manager